WASHINGTON - Two prominent economists, both former government officials, are recommending that Congress significantly raise deposit insurance coverage, index it to the median income level, and "simplify" existing rules so that consumers cannot manipulate the system for additional coverage.

In a report released Monday, Alan S. Blinder, a managing partner with Promontory Financial Group and former vice chairman of the Federal Reserve Board, and Robert F. Wescott, who was a special assistant to President Clinton for international economics and finance, endorsed many of the Federal Deposit Insurance Corp.'s ideas about reform, among them more refined risk-based premiums. But their paper went further by calling for expanded coverage.

That proposal is likely to face an uphill fight on Capitol Hill. Fed Chairman Alan Greenspan and Senate Banking Committee Chairman Phil Gramm have opposed doubling coverage, and have said that the coverage increase could exacerbate moral-hazard concerns.

But Mr. Blinder and Mr. Wescott rejected that argument, and said risk-based premiums should ease fears that a higher coverage level would constitute a moral hazard, because banks would be paying for insurance based on their expected losses to the reserve funds.

"We are a bit baffled by the strength of this opposition," their report said. "If the deposit insurance premiums were set to reflect expected losses … most objections based on moral hazard and/or unwarranted subsidies should evaporate."

Their paper did not go as far as to recommend doubling coverage, but suggested raising the limit to between $125,000 and $150,000.

More controversial is its call for "simplification" of the coverage system. Currently, a couple with two individual accounts and a joint account at a single bank can get coverage for $400,000 of deposits - $100,000 for each individual account and $200,000 for the joint account. A four-person family with multiple accounts could get coverage for nearly $2.4 million of deposits at one bank.

In an interview Friday, Mr. Blinder said that the system should be simplified so that one individual could have only $100,000 - or more, if the coverage limit were raised - per bank.

"When you have rules nobody understands, I think that is not a good system - and nobody understands these rules," said Mr. Blinder, who is also an economics professor at Princeton University. "Secondly, despite what we view now as a $100,000 coverage limit, individuals who understand the rules and work them hard enough can have a hugely larger volume of insured deposits."

But their argument for simplification, which could help ease the concerns of Sen. Gramm and Mr. Greenspan, is not likely to sit well with the industry.

Though industry representatives on Monday had yet to read Mr. Blinder and Mr. Wescott's paper, which was scheduled to be released on the FDIC's Web site that evening, many bankers already oppose simplification. Community bankers, who have pressed the hardest for increased coverage levels because they believe it will ease funding concerns, have said that simplifying coverage is not a good tradeoff.

"If I had to make a choice between increasing coverage and limiting the amount of ways a person could get coverage, I would say leave the coverage where it is," Katie Winchester, president and chief executive officer of First Citizens National Bank in Dyersburg, Tenn., said in an interview last year. "Simplifying the system would eliminate any advantage we might gain from increasing coverage."

The economists' paper also broke new ground by suggesting an alternative to tying the coverage level to inflation, as the FDIC has recommended. The paper suggested indexing coverage to a measure of nominal income, such as the GDP per capita.

Under that system, the coverage limit could grow more rapidly than if it kept pace with inflation. For example, if the current $100,000 limit had been indexed to inflation from 1980, the last time it was raised, banks would offer a coverage limit close to $200,000.

By contrast, if the limit were indexed to nominal GDP per capita from 1980, the limit would now be nearly $300,000, the paper said.

"The notion and rationale was that in thinking abstractly you want to think of a world in which incomes are growing and bank accounts are growing in proportion to incomes, so people keep the same portion of their income in the bank," Mr. Blinder said. "And so you should raise the coverage limit accordingly."

The paper ultimately recommended increasing the limit to between $125,000 and $150,000 as a starting point, and then indexing for income. Mr. Blinder said that the limit should not be raised during a set time frame, but be allowed to erode until a reasonable round-number hike, such as $25,000, would compensate.

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